The question extending back to last spring’s election that brought Fidesz to power, is how will they find the money to buy Surgutneftegaz’s 22% shareholding in MOL. Well, since my analysis has been spot on, that nothing is going to happen, because the Hungarians have the Russians pinned. It now seems the Hungarians are becoming increasingly embarrassed by their strong position over their former rulers – as they are increasingly trying to find ways to let the Russians save face – I have a solution.
I need to preface my solution with a warning, that this wouldn’t work in most democratic countries. But recent legislation by Hungary’s government from killing the independent budget council, changing the constitutions to limit the constitutional court, taking all the pension fund money, passing highly questionable media legislation, placing a huge revenue tax on utilities, telecoms and retail companies (regardless if they make a profit and from previous year’s filings) and of course passing a 98% tax retroactive 5 years on state bonuses. Indicates that my suggestion just may work.
From these actions a basic statement can be formulated: Hungary right now may become the first post-soviet country to pursue alternative democratic measures. That is, in Chinese, there are different democratic models that can be used by the state. Hungary, it can be said, is embarking not just on an ‘unusual economic experiment’, as Prime Minister Orban and others in his cabinet have said, but they are also starting an experiment in representational democracy.
Due to these existing conditions, my suggestion to solving the MOL/Hungary -Surgutneftegaz/Russia situation is all the more applicable.
Recently, I have been involved in separate projects that have allowed me to study the energy sector in Central Asia. It really is fascinating – while at the same time sad when you consider the actions of the political leadership and the impact their decisions have on the economically starved citizens (I won’t yet draw parallels with Hungary here). It is through this research that I found the following solution to funding a hyrdopower project in Tajikistan.
Tajikistan is seeking to complete its unfinished 3,600-megawatt Vakhsh River Rogun hydroelectric dam, begun in 1976. In December  the Tajik government issued Rogun stock and made it compulsory for citizens to purchase nearly $700 worth of shares, a sum exceeding most Tajiks’ annual income, in order to collect $600 million for construction to continue. After IMF Tajikistan mission head Axel Schimmelpfennig stated that the mandatory forced donations would destabilize the Tajik economy and that returns would be “negligible,” Tajik President Emomali Rakhmon suspended the campaign on 12 April as his administration negotiated with the IMF (Central Asia-Caucasus Institute)
Now it remains to be seen where Hungary could get the money to buy out the MOL shares from Surgutneftegaz. Particularly since funding is becoming more expensive for Hungary – with the constant downgrading and negative outlooks by ratings agencies a further indication of funding access in the future. Therefore, how best to finance a purchase of MOL shares valued at more than EUR 1.4 billion (the price paid by Surgut to OMV)? And since it has been stated by Hungary’s leadership that ownership in MOL (and other energy companies) is connected to national security than what better way of financing the purchase then to force Hungarians to pay for it themselves?!
With Hungarians increasing their savings (no doubt related to uncertain times), it only becomes a matter of time before the government taps into this pile of money to finance current operations – or to ‘ensure the security of the country’s energy supply’. MOL will then have to wonder whether it is better to have the Russians as a shareholder or the unpredictable Hungarian government.
If this scenario does play out then we can only hope it ends up like the Tajik experience, with the IMF/EU stepping in to stabilize the Hungarian economy and putting the kabash on the further ‘reallocation’ of money for energy projects. Or maybe we can look forward to a third ‘special’ tax on the energy sector….